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Jacobs yields to $4 billion U.S. suitor.

Jacobs yields to $4 billion U.S. suitor

Good marriages, they say, are made in Heaven, and they could well be right. But in the food and beverage industries, on the other hand, a lot of modern unions seem to have been arranged in hotter circumstances so that, understandably, they tend to come unstitched at the seams when they're put under strain.

In the case of the coffee business, of course, strain goes with the territory these days. For sure, there used to be a time when trading figures for roasters and soluble processor, agents and brokers, and all the servicing organizations, proceeded from year to year in a gently upward curve. In Europe, in the 1950's, coffee was still a luxury commodity (or, in the case of Britain, an exotic newcomer in the instant form), and in the U.S. the mighty bean was still unchallenged as King of the Beverages.

Things might have continued along those lines for some time, except that the colas began to muscle in on the market, first in the U.S. and then throughout the civilized, and sometimes even the not-so civilized, world. As if that wasn't bad enough, when green coffee prices took of after 1975, the colas suddenly began to look cheaper. In fact, they were always more expensive, but the consumer didn't see them that way and all of a sudden some of the oldest and most respected names in the business began to look a lot less secure.

In Europe the aerated drinks made far less impact in the market and the major companies still looked sound enough. Towards the end of the 70's the plunge in green prices forced any number of traders and brokers into forced marriages or the arms of the bankruptcy lawyers, but as far as actual consumption went there was less of a generation gap than in the U.S. and people of all ages still appreciated the fragrant cup, so that sales held up surprisingly well.

But if the generations shared an enthusiams for coffee as a drink, it was sadly true that they were not always of the same mind about the business of coffee. As in so many other forms of endeavor, enterprises created by dynamic forefathers looked a whole lot less attractive by the time they had been passed on to a third generation. Worse still, the family shareholdings were often diluted among several branches, so that in effect no single individual had the authority to drive the aging company forward.

In the circumstances, the major U.S. corporations, led by General Foods, began to buy up famous old European brand names as a hedge against falling sales in their own domestic markets. It was all quietly done, and often these takeovers created a healthy symbiosis between superior American forms of handling corporate financing and European expertise in the highly individualistic local markets. In others, there was nothing more than mutual incomprehension from day one, and in these cases the big multinationals found new buyers for their holdings among other corporations who were eager to get into the international game.

Jacobs, once a dominant figure in the German industry, took another, wholly European route, when the staid Bremen bachelor made an offer for the and of it's neighbor in Holland, Douwe Egberts. In this case, however, it was a severe mismatch and the marriage was soon dissolved on the grounds of non-consummation. After that, Jacobs move its corporate headquarters to Switzerland and began to broaden the scope of its own operations, under the direction of Klaus Jacobs.

In the 80's, the American vogue for takeovers and buyouts spread to the European money men, and in 1982 Klaus Jacobs gleefully took on some of the big boys in the international merry-go-round by wedding the Swiss confectionery group, Suchard-Tobler, to form Jacobs-Suchard.

The old business maxim that companies should stick to what they know best seemed no longer appropriate for the great go-go decade. When the long-established British confectionery company, Rowntrees of York, seemed to be up for grabs in 1988, Jacobs put in a $4.14 billion bid. He had, after all, parlayed his Jacobs-Suchard group into becoming market leader in both coffee and confectionery in Germany, Austria and France, and he probably felt that a British scalp would look well in his belt.

But Nestle, one of the silkiest operators in world markets, had other ideas. After a brisky fought battle, with neither side taking prisoners by all accounts, Rowntree blushingly accepted the offer from Vevey.

Jacobs-Suchard nevertheless cleared a handsome profit on its stake in the U.K. company and then, as a middling-size fish in a fairly large pond, Klaus Jacobs went looking for other prey, overlooking the fact that in this sort of situation there's always another, bigger fish waiting for a nourishing snack. In this instance, the Jaws in question belonged to Philip Morris, the U.S. tobacco giant.

What happened was that in 1987, Jacobs-Suchard decided to buy its way into the U.S. market by purchasing the confectionery firm E.J. Brach for some $1.3 billion. But for one reason or another, a big turnover in top management is cited as one, the U.S. company turned in a $90 million loss in 1988, and Klaus Jacobs took personal responsibility. Then, last year, he bought out other family interests in the group for $522 million, only to see Swiss interest rates rise majestically from 6 to 11%.

He had to sell, and Philip Morris is said to have paid $4 billion for Jacobs-Suchard, with Klaus Jacobs getting $1.3 billion for his personal stake plus certain assets, including E.J. Brach. The deal did not sit at all well with the Swiss, who feel that the price was too low and that shareholders were being offered less than Klaus Jacobs for their holdings.

In part this may be due to Swiss pique at the fact that the takeover is the first acquisition of a leading Swiss firm by a foreign interest, and there have also been allegations of insider dealing. An enquiry is possible.

Be that as it may, it would seem that the whole game is set to continue. Recent reports in UK newspapers suggest that Philip Morris may be inteding to offer the Suchard end of the business for sale at some $2.25 billion, and another U.K confectionery big timer, Cadbury Schweppes, is said to be interested. This has surprised some insiders, but Philip Morris did reveal at a recent U.S. seminar that is actually bought Jacobs-Suchard for the coffee side of the business; PM owns Maxwell House, HAG and Kenco, and the Jacobs brands-Jacques Vabre and Night & Day-seem to make a winning hand.

As Europe approaches the magical year of 1992, when all trade boundaries will be dissolved, leaving one gigantic market to be fought over, many U.S. and non-Community companies are making sure of their share of the action by judicious buying-in, and established companies are building up their defenses to keep out invaders. That means that the takeover trend will continue unabated for some time to come. By the year 2000 it will be hard to tell who, exactly, owns precisely what.
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Title Annotation:Jacobs-Suchard AG merged with Philip Morris Companies
Author:Clark, Richard
Publication:Tea & Coffee Trade Journal
Date:Aug 1, 1990
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